Redundancy survival guide

Being made redundant can be a difficult time in your life. It's important to consider your options to make the most of your situation.

Here we explain what a redundancy is and some things you can do to get back on track following a redundancy.

What is a redundancy?

A redundancy is when your employer terminates your employment because they either decide that your job is no longer needed, or they become insolvent or bankrupt. You will usually receive a redundancy payment, which will have rate of tax applied that's lower than your marginal tax rate.

Payments included in a redundancy package

A redundancy package will include a redundancy or severance payment and your unused annual leave and long service leave. It may also include a payment in lieu of notice and a 'golden handshake' or other incentive payment.

Accrued sick leave or personal leave is not usually paid out to you when you leave an organisation.

If your employer has gone into administration or liquidation and you are owed entitlements after losing your job, you may be able to get financial help from the Australian Government through the Fair Entitlements Guarantee.

How your redundancy payment will be taxed?

A genuine redundancy, which consists of a payment in lieu of notice and a possible incentive payment, has a special tax treatment which means some or all of your payment will be paid to you tax free.

The tax free portion is calculated as:

base amount + (service amount x completed years of service)

For the 2018-19 financial year, the base amount is $10,399 and service amount is $5,200. Any amounts over the tax-free portion are taxed concessionally, up to ETP cap amounts, at a maximum of 32% (including Medicare levy) if you are below preservation age, or 17% (including Medicare levy) if you have reached preservation age.

Amounts over the tax-free portion are taxed as employer termination payments (ETPs). If you are aged 65 or over, you are not eligible for a 'genuine redundancy' payment and your entire payout will be treated as an ETP.

Unused annual leave and long service leave is also taxed concessionally, up to 32% (including Medicare levy). For more information see the Australian Taxation Office's redundancy payments webpage.

Making a redundancy plan

Unless you are retiring, your payout will have to last you until you get another job, and this may take longer than you think.

Smart tip

Work out how long your payout will last so you can better plan your next steps.

Prepare an emergency budget

List all your essential costs such as rent or mortgage payments, utilities, food, transport, insurances and other necessary expenses. It may be helpful to create a temporary budget, just to get you through this period.

Work out where your money is going.

Budget planner

Once you've added up your basic living costs you'll be able to calculate how long your payout can last while you're looking for another job.

Paying your bills

Trying to manage bills without a regular income can be stressful.

If you're having trouble paying your water, phone, gas or electricity bills, contact your utility providers and see if you can negotiate a better repayment arrangement. For more details see our webpage on problems paying your bills and council rates.

If you're struggling to pay your loans and credit cards, talk with your credit or service provider and let them know you are experiencing financial difficulty and ask for a hardship variation from your credit provider. Taking action straight away can stop a prevent a small problem from becoming a big one. 

For more tips on living on a tight budget, see our webpages on:

Managing a large payout

If you have received a large payout, you could:

Then you can draw the money down slowly to cover your ongoing expenses.

Paying down debt is a great idea when you have a new job to go to but, before you go down that path, find out what waiting periods (if any) will apply before you can access unemployment benefits. Make sure you can cover your expenses for this period before making extra repayments on your debts.

Being cautious at the beginning may save you from experiencing financial hardship in the future if finding a new job turns out to be harder than you hoped.

Don't forget your super

Any break from work can affect your super balance at retirement. Now might be a good time to check your super, consider your investment option and insurance needs and think about how you can top up your super balance when you start working again.

Work out how a break from paid work will affect your retirement income.

Retirement planner

Getting unemployment benefits

If you've been made redundant you may be entitled to unemployment benefits.

Waiting periods

A redundancy payout is based on a number of weeks or months of your ordinary time earnings. You will also have received an amount of money for your unused annual leave. You will not be eligible for Centrelink benefits for the period of time you have been paid for.

For example, if you receive a payout equal to 8 weeks pay plus 3 weeks for unused annual leave, you will not be eligible for Centrelink payments for at least 11 weeks. This is known as an 'income maintenance period'.

You may also have to serve a 'liquid assets waiting period' based on the amount of liquid assets you have, that is, assets that could be used as income.

If you are experiencing financial hardship due to unavoidable or reasonable expenditure, these waiting periods may be waived. You can lodge a claim for payment through the Department of Human Services. They will assess your claim and advise you of any waiting periods that apply.

Your partner's income

If you have a partner, their income will be taken into account when working out your entitlement to income support payments.

If your partner has a high income you may not be eligible for income support benefits. For more information see the Department of Human Service's income test for allowances.

Long service leave for building and construction workers

Building and construction workers often work on multiple projects across many employers, which makes it difficult to accrue long service leave (LSL). Each state and territory has a LSL scheme that gives building and construction workers access to portable LSL.

Some of these schemes also cover a small number of other industries such as:

  • Contract cleaners
  • Community sector workers
  • Security workers.

If you have been made redundant from one of these industries, contact the scheme in your state to see if you are entitled to a LSL payment. You can access the schemes through the Ausleave website.

Retraining after redundancy

Being made redundant may give you an opportunity to complete a short course or pursue a new qualification. This may help you get a new job.

If you are entitled to Centrelink benefits you may be able to get help with the cost of retraining. See the redundancy webpage on the Department of Human Services website

Returning to work after redundancy

Finding a new job may be a relief after you've been made redundant. Your next steps will depend on the state of your finances when you start your new job.

First sort your bills

If the bills have mounted up while you were unemployed, your first priority will be getting back on your feet. Start with the most urgent bills, making sure you leave yourself enough money to cover ongoing living expenses. Be disciplined with your cash until you're up to date with all your bills.

Money left over

If you are fortunate enough to still have some of your payout left when you start a new job, think carefully about the opportunities this gives you.

Here are a few ideas to help you make the most of your left over money:

  • Reduce debt - If you have any personal debt such as a credit card or loan, consider paying it off or reducing it to free up income for savings.
  • Create an emergency savings account - A savings buffer can help you deal with unexpected expenses in the future. For more information visit our webpage on building an emergency fund.
  • Start an investment portfolio - Learn how to build your investment plan using the tools and resources in the 'invest smarter' section of the website.
  • Take a break - Being out of work and searching for jobs can be extremely stressful, so if you can afford it, take a short break before you start your new job to recharge your batteries

Being made redundant can be an emotional and difficult time. It's important to keep a level head and plan as much as possible so that you make the best of what you have. Try to keep a positive attitude as this will show through in job interviews and seek help if you need it.

Related links

Last updated: 19 Dec 2018